• United Kingdom is included in the IFAD GAAP Convergence Studies
• National Professional Organisation Website: The Institute of Chartered Accountants in England & Wales
• National Professional Organisation Website: Chartered Institute of Management Accountants
• National Professional Organisation Website: The Association of Chartered Certified Accountants
• National Professional Organisation Website: The Chartered Institute of Public Finance and Accountancy
• National Professional Organisation Website: The Institute of Chartered Accountants of Scotland
• National Professional Organisation Website: Association of Accounting Technicians
• Standard Setter Website: United Kingdom Accounting Standards Board (ASB)
• Response to IFAC Member Body Survey on Standard Setting and Regulation

Updates

London:

Adoption of IFRSs in Europe Effective in 2005

In June 2002, the European Union adopted an IAS Regulation requiring European companies listed in an EU securities market, including banks and insurance companies, to prepare their consolidated financial statements in accordance with IFRSs starting with financial statements for financial year 2005 onwards. EU countries have the option to:

• Require or permit IFRSs for unlisted companies.
• Require or permit IFRSs in parent company (unconsolidated) financial statements.
• Permit companies whose only listed securities are debt securities to delay IFRS adoption until 2007.
• Permit companies that are listed on exchanges outside of the EU and that currently prepare their primary financial statements using a non-EU GAAP (in most cases this would be US GAAP) to delay IFRS adoption until 2007.

The European IAS regulation applies not only to the 27 EU Member States but also to the three members of the European Economic Area (EEA) – Iceland, Liechtenstein, and Norway.

The United Kingdom is an EU Member State. Consequently, UK companies listed in an EU/EEA securities market follow IFRSs since 2005. In July 2010, the European Commission published the results of a survey of the 27 EU member states and the 3 EEA member states regarding the four options above. For information on each country's plans, click to download:

• Table on Use of IFRS Options in 30 EU Member and EEA States (PDF 64k)

The European Commission has adopted the following wording for use in the notes to the accounts and in the audit reports of companies subject to EU Regulation 1606/2002/EC (the 'IAS regulation'):

• "in accordance with International Financial Reporting Standards as adopted by the EU" or
• "in accordance with IFRSs as adopted by the EU".

The UK Auditing Practices Board also requires companies subject to the IAS regulation to state, in a footnote, compliance with IFRSs as adopted by the IASB, if that is the case.

In September 2011, the European Commission services published a report an update on the extent to which certain options included within the Accounting Directives have been incorporated into the law of the Member States and EEA countries. Please click for access to the report (PDF 816k, link to EC website).

Companies Not Subject to the EU IAS Regulation

Companies with securities admitted to trading on the Alternative Investment Market (AIM) of the London stock exchange are not subject to the EU IAS Regulation. The AIM has adopted a rule that will require AIM companies to submit IFRS financial statements starting in 2007.

All other UK companies, for their consolidated financial statements, are permitted to use IFRSs or to follow the accounting principles established by the United Kingdom Accounting Standards Board, as follows:

Companies other than small companies

Unlisted companies other than small companies must follow:

• Financial Reporting Standards (FRS) issued by the UK Accounting Standards Board (ASB)
• Statements of Standard Accounting Practice (SSAPs) adopted by the UK Accounting Standards Board
• UITF Abstracts issued by the Urgent Issues Task Force (UITF) of the UK Accounting Standards Board

Small Unlisted Entities

Small companies may elect to report under the Financial Reporting Standard for Smaller Entities (FRSSE), which gives exemptions from applying all other accounting standards.

	Deloitte LLP (United Kingdom) have developed a series of publications on financial reporting in the UK, including: iGAAP 2011 – IFRS reporting in the UK iGAAP 2011 – Financial statements for UK listed groups ukGAAP 2010 – Financial reporting for UK unlisted entities
	ukGAAP 2011 – Financial statements for UK unlisted groups

Each of these can be purchased through Lexis-Nexis online at www.lexisnexis.co.uk/deloitte or call +44 (0) 845 370 1234. There is more information on the Deloitte UK Website.

Revised proposals published for a new reporting framework in United Kingdom

The United Kingdom Accounting Standards Board (ASB) has published three Financial Reporting Exposure Drafts (FREDs) setting out revised proposals for the future of financial reporting in the UK and Republic of Ireland.

The three exposure drafts are:

• FRED 46 Application of Financial Reporting Requirements (draft FRS 100)
• FRED 47 Reduced Disclosure Framework (draft FRS 101)
• FRED 48 The Financial Reporting Standard applicable in the UK and Republic of Ireland (draft FRS 102).

The reporting framework proposed by the FREDs would operate as follows:

• entities required by law to apply EU-adopted IFRS must do so – previous proposals to require entities with 'public accountability' to apply EU-adopted IFRS in full have been discontinued
• certain qualifying entities (mainly subsidiaries and ultimate parents) may apply the EU-adopted IFRS with reduced disclosures as set out in FRED 47 – these entities would apply the recognition and measurement requirements of EU-adopted IFRS in full but benefit from lower disclosure requirements
• all other entities apply the draft standard set out in FRED 48 – these requirements would be based on the IFRS for SMEs but include modifications so that it fits better with the financial reporting requirements in the UK and Republic of Ireland, e.g. where an accounting treatment is permitted currently
• retaining the financial reporting standard for smaller entities (FRSSE) – the ASB will consult further once the European Commission's proposals to change the financial reporting requirements for small and micro-sized entities are clarified.

Comment on the FREDs close on 30 April 2012. Click for:

• ASB press release (link to ASB website)
• Our previous story on the ASB's original proposals (October 2010)
• Our previous story on the ASB's redeliberations on the proposals (June 2011)

ICAEW issues summary of its auditor-investor forum

The Institute of Chartered Accountants in England and Wales (ICAEW) has published a report summarising the some of the key highlights of its Auditor-Investor Forum held on 24 November 2011. During the forum, investors, auditors and financial statement preparers had discussions on the main issues related to 2011 year-end bank reporting, more specifically, exposure to sovereign debt, risks taken to secure returns and liquidity management. The report also states that differences between IFRS and US GAAP, such as IFRS having more restrictions on netting of financial instrument positions versus US GAAP's less restrictive stance, continue to cause issues when comparing US and non-US firms.

Click for the ICAEW Auditor-Investor Forum report (link to ICAEW website).

FRC issues an update responding to country and currency risk in financial reporting

The UK Financial Reporting Council (FRC) has issued An Update to Directors of Listed Companies: Responding to increased country and currency risk in financial reports. The Update was issued due the current economic uncertainties in numerous countries. The Update aims to provide issues to UK listed companies that may occur when responding to the increasing country and currency risk when filing their annual and semi-annual financial reports. The Update notes the following:

The Update also suggests that additional guidance should be considered, such as the ESMA's statement Sovereign Debt in IFRS Financial Statements (see our earlier story).

Click for:

• FRC report: An Update for Directors of Listed Companies: Responding to increased country and currency risk in financial reports (PDF 761 KB, link to FRC website)

UK report on going concern considers efficacy of IFRSs

The Sharman Panel of Inquiry, established at the invitation of the United Kingdom Financial Reporting Council (UK FRC) to consider going concern and liquidity risks, has published its preliminary report and recommendations.

The aim of the Inquiry was to identify lessons for companies and auditors addressing going concern and liquidity risks and to recommend measures, if any, which are necessary to improve the existing reporting regime and related guidance for companies and auditors. The Panel recommends that for all businesses the going concern assessment should focus not only on short term liquidity risks but also on solvency risks that could threaten the company’s survival over the business cycle or that could cause significant damage to the community and environment.

The terms of reference for the inquiry included consideration of whether the going concern and liquidity risk disclosures required by IFRS provided timely and relevant information for all stakeholders. The Panel's preliminary report makes a number of observations on IFRS related matters, including:

• The Panel agrees and believes that the indicative minimum review periods set out in IFRS and UK GAAP are more relevant to considering the period over which detailed budgets and forecasts should be prepared than to the period over which other aspects of a going concern review should extend (particularly that 'stress tests' should be applied considering relevant economic outlook and business cycles)
• Investors and quite a lot of others have raised questions about the suitability of IFRS accounts as a basis for assessing solvency - noting views such as in the finance sector the regulatory capital assessment rather than the IFRS accounts is the better starting point, that an IFRS balance sheet isn't that useful for assessing capital adequacy because it lacks prudence, or that the use of IFRS accounts requires adjustments for prudence to ensure that the measure of capital held is robust and able to withstand a reasonable range of stresses
• Capital management is important to investors – they want to understand how this is done, through the eyes of management. The IAS 1 disclosures are not generally providing what they want, though they could in principle be used to do so
• The going concern assessment is a forward looking process - whilst it builds on past data, it also includes looking at possible outcomes not yet experienced. This "does not sit well with the IFRS accounts which are essentially backwards looking"
• The incurred loss model is widely accepted to have been inappropriate and is being addressed. A number of respondents and commentators suggested that "there was a sense that IFRS engendered a compliance mentality and that a more principles based approach was appropriate"
• One area of concern to regulators is the inconsistency they observed in valuations of the same financial instruments using different models and there are "inherent issues with point estimates".

Click for UK FRC announcement (link to the UK FRC website).
 

Latest Deloitte survey of annual reporting in the United Kingdom

Deloitte (United Kingdom) has published the latest edition of its annual reporting survey, Gems and jetsam — Surveying annual reports (PDF 4,536k). Gems and Jetsam follows on from the 2010 annual reporting surveys. This year's survey is a combined analysis of the narrative reporting and financial statements of 130 listed companies, split into two categories, being investment trusts and other companies. The survey includes a review of: how compliance with the disclosure requirements of the United Kingdom Companies Act 2006, the Listing Rules, the Disclosure and Transparency Rules and the Combined Code varied the extent to which companies have adopted the United Kingdom Financial Reporting Council's (FRC) revised guidance on going concern and liquidity the use of the United Kingdom Accounting Standards Board's (ASB) Reporting Statement: Operating and Financial Review the variety in presentation of the primary statements in listed companies' financial statements which critical judgements and key estimations directors consider to be the most significant when preparing their financial statements how compliance with disclosure requirements and the accounting policy choices made under IFRSs varied. The survey findings include: The average length of annual reports has decreased for the first time from 101 pages in 2010 to 98 pages in 2011 (largely due to two banks with substantial cuts in the length of their reports, although around half of all companies evidenced some reductions) Accounting policies and share-based payment notes take up approximately 18% of the audited financial statements, prompting the report to note that "the state of financial reporting does cause concern" 63% of investment trusts and 45% of corporates' parent entities continue to report under UK GAAP, and so would be impacted by the current deliberations of the UK ASB on the future of UK accounting. Click for Gems and jetsam — Surveying annual reports (PDF 4,536k).

Consultation on the future role of the UK Financial Reporting Council

The aim of the reforms is to create an FRC that is clearer about its role and purpose, narrowing its focus to areas of greatest concern to the operation of the capital markets and reinforcing its independence. The consultation also proposes replacing the FRC's existing seven operating bodies with two Board Committees – one focusing on Codes and Standards, the other on Conduct.

Please click for the FRC press release and access to the consultation (all links to FRC website). Responses to the consultation are invited by 10 January 2012.
 

IFRS 9 Impairment webcast

Deloitte (United Kingdom) presents a webcast exploring the findings of Deloitte's global banking IFRS 9 Impairment Survey 2011 and discussing current developments and the IASB's progress on the IFRS 9 impairment project. It also addresses the impact of the new rules and the associated implementation challenges for organisations. Please click for access to the webcast (link to Deloitte UK website).
 

A sea of change in new IFRS Standards — Impact on the shipping industry

Deloitte (United Kingdom) has published A sea of change in new IFRS Standards – Impact on the shipping industry (PDF 94k). The publication discusses how three recent standards (IFRS 10, IFRS 11, IFRS 12) will affect the way entities account for and disclose their ownership and involvement in other entities.

UK FRC launches 'Financial Reporting Lab'

The United Kingdom Financial Reporting Council (FRC) has launched a 'Financial Reporting Lab' which aims to bring together companies and investors to identify practical solutions to reporting problems, such as the length and complexity of reports and financial statements.

The Lab is expected to focus on helping quoted UK companies communicate more effectively with investors and analysts. Listed companies from all industries and of all sizes are being invited to participate, along with professional investors and the retail shareholder community.

The priorities of the Lab will be determined primarily by companies and investors. Projects that have been suggested to date include relatively simple improvements to the notes to the financial statements, a review of the effectiveness of elements of narrative reporting and governance information, the potential to revisit the use of websites versus physical reports, and the materiality of specific disclosures.

The establishment of the Lab follows other initiatives such as the United Kingdom Accounting Standards Board report on cutting clutter, the Institute of Chartered Accountants of Scotland (ICAS) and the New Zealand Institute of Chartered Accountants (NZICA) report on reducing disclosures under IFRSs, and the wider call for integrated reporting.

Click for FRC press release (link to UK FRC website).

UK ASB welcomes guidance paper on forbearance and impairment provisions

The Financial Services Authority (FSA) recently published a Guidance Paper "Forbearance and Impairment Provisions — Mortgages". The UK Accounting Standards Board (ASB) of the Financial Reporting Council (FRC) has noted that it welcomes the release of this paper, since the ASB believes it is "a contribution towards the continued development of better financial reporting in the UK".

Click for:

• ASB press release (link to ASB website)
• FSA Guidance Paper "Forbearance and Impairment Provisions — Mortgages" (link to FSA website)

Deloitte survey of first halves' interim management statements in the UK

Deloitte (United Kingdom) has published Issuing fourth news — Surverying first halves' interim management statements (PDF 590k), the latest in the Firm’s financial reporting series and analyses the interim management statements made by 130 listed companies. The publication considers how UK listed companies have met the requirements for an interim management statement (IMS) in the fourth year of compliance with the Disclosure and Transparency Rules (DTR) with their first halves’ IMSs. The survey found that 22% of the selected corporates clearly complied with the IMS content requirements.

FRC acts to increase transparency in corporate reporting

Further to our earlier story, the UK's Financial Reporting Council (FRC) has held discussions over the last six months with companies, investors, auditors and other interested parties following the release of its discussion paper, Effective Company Stewardship: Enhancing Corporate Reporting and Audit, in January 2011. The FRC has recently issued two additional reports following these discussions. The first, Boards and Risk: A Summary of Discussions with Companies, Investors and Advisers, summarises these discussions held over the last six months. The second, Effective Company Stewardship: Next Steps, outlines the responses received by the FRC to its original discussion paper and summarises the future actions that the FRC intends to take. In these reports, the FRC notes that there is one common issue to be addressed: "audit is not meeting user and/or public expectations and . . . there is a need for greater transparency about the judgements made by management and auditors in the course of preparing and auditing financial statements".

Click for (all links to FRC website):

• FRC press release
• Boards and Risk: A Summary of Discussions with Companies, Investors and Advisers
• Effective Company Stewardship: Next Steps

UK Government and FRC publish discussion paper on reducing the financial reporting burdens for micro-entities

Small and medium sized entities (SMEs) feel that laws and regulations, and accounting and auditing standards governing business have become very much more complex in an attempt to address a world where businesses at the top end of the corporate sector have become larger and more diverse, and their activities increasingly complex. Complying with all these requirements is burdensome, costly and of little added little value to SMEs, to their stakeholders, or to other users.

The BIS and FRC's discussion paper seeks views on the development of a new reporting regime that

• fulfils certain minimum requirements,
• aligns financial reporting requirements with tax requirements, and
• reduces or removes inconsistencies in the current requirements.

The discussion paper is available here (link to BIS website); comments are requested by 30 October 2011. The FRC has published a press release on the discussion paper (link to FRC website).

In a similar vein, the European Commission had proposed in February 2009 to allow Member States to exempt very small entities from the requirements of the 4th Directive. After a long period of negotiations, the European Parliament is currently considering the agreement on proposals reached by the Council of Ministers on 30 May 2011.

Update on the IASB's project to replace IAS 39

Deloitte's UK Financial Services Industry group has issued an IFRS 9 Financial Instruments Status Update paper. The paper summarises where the International Accounting Standards Board (IASB) is in its project to replace IAS 39 Financial Instruments: Recognition and Measurement. The paper includes a summary of the factors behind the IASB's recent proposal to defer the mandatory effective date of IFRS 9 from 2013 to 2015. It also provides a high-level comparison to some of the US Financial Accounting Standards Board's tentative decisions on its financial instruments project. Please click for: IFRS 9 Financial Instruments Status Update (PDF 748k)

UK FRC reaffirms importance of 'true and fair'

The Accounting Standards Board (ASB) and Auditing Practices Board (APB) of the United Kingdom Financial Reporting Council (FRC) have published a paper discussing the 'true and fair' requirement and its relevance to preparers, those charged with governance and auditors.

The purpose of the paper is to confirm the view of the ASB and APB that the true and fair requirement remains of fundamental importance in both UK GAAP and IFRS.

The paper discusses the need for professional judgement, the role of 'prudence' under UK GAAP, reflecting 'substance over form', how the true and fair concept is represented in accounting standards, and the approach to be taken by auditors.

Click for FRC press release (link to FRC website).
 

UK ASB issues Amendments to FRS 29

The UK Accounting Standards Board (ASB) of the Financial Reporting Council (FRC) has published Amendments to FRS 29 (IFRS 7) 'Financial Instruments: Disclosures': Disclosures — Transfers of Financial Assets. The goal of the Amendments is to improve the disclosures on transfers of financial assets. The Amendments incorporate new disclosure requirements that will help users of financial statements evaluate an entity's risk exposure arising from transfers of financial assets, as well as any resulting impact on its financial position. The ASB has issued these Amendments to keep FRS 29 aligned with IFRS 7, which the IASB amended in October 2010.

The Amendments to FRS 29 are effective for annual periods beginning on or after 1 July 2011.

Click for:

• ASB press release (link to ASB website)
• Amendments to FRS 29 (IFRS) 'Financial Instruments: Disclosures': Disclosures — Transfers of Financial Assets (PDF 216k)
   

UK Government will complete switch to IFRS in 2013

The decision was reached following an advice of the UK Financial Reporting Advisory Board (FRAB). The FRAB had expressed concerns about a further delay to the application of the accounting standard, while the Government considered that more time is necessary to apply this standard consistently and correctly in a resource efficient manner.

Please click for the FRAB press release (link to UK Treasury website).

UK ASB tentatively revises forthcoming differential reporting framework

As part of its ongoing redeliberations, the UK Accounting Standards Board (ASB) has tentatively agreed to a number of amendments to its proposed revised differential reporting framework, to reduce its impacts on certain entities and extend its proposed application date.

The ASB published its published its proposals for the future of financial reporting in the UK and Republic of Ireland in October 2010 (see our earlier story). The Exposure Drafts set out proposals for a three-tier reporting framework, with the aim of balancing the needs of preparers and users of accounts.

At its meeting held on 16 June 2011, the ASB made the following tentative decisions:

• To remove from FRED 43 Application of Financial reporting Requirements and FRED 44 Financial Reporting Standard for Medium-sized Entities (FRSME), the requirement for publicly accountable entities to prepare accounts under EU-adopted IFRS. As a consequence the application of EU-adopted IFRS will not be extended beyond the current requirements in law. This measure will particularly assist certain charities that would otherwise be captured as having "public accountability"
• To change the principles for amending the IFRS for SMEs in developing the FRSME (to be applied by all entities other than those required to comply with EU-adopted IFRS and small companies), to permit or require accounting options that exist in current UK and Republic of Ireland Financial Reporting Standards at the transition date that align with EU-adopted IFRS
• To defer the proposed effective date of the proposals to 1 January 2014 (instead of 1 July 2013), to allow time for the creation of a new exposure draft of the FRSME.

Click for the ASB meeting summary (link to the UK Financial Reporting Council website).
 

UK pensions industry disapproves of IFRSs

Deloitte (United Kingdom) has conducted a poll to find out whether the pensions industry supports the proposals of the ASB. The results showed that:

• 43% of respondents were of the opinion that no change is needed in financial reporting by pension schemes;
• 75% of all respondents said that not all pension schemes should be classified as publicly accountable entities (i.e. have to apply IFRSs); where one third of these (24% of all respondents) agreed that some schemes depending on other factors should be classified as publicly accountable;
• Asked on which criteria the decision of public accountability should be based if not all pension schemes are to be classified as publicly accountable, the respondents named a consideration of the number of members in the scheme (26%), the value of investment assets held (11%) and a combination of members, investment assets and the level of contribution income (53%).

Please click for an overview of all results of the poll (PDF 22k) and our earlier story explaining the new tier structure proposed by the ASB.
 

Headline: IFRS and the House of Lords

The UK House of Lords inquiry into the audit market was never intended to stray into the field of IFRS. But it did and, as our resident, regular columnist Robert Bruce suggests, their Lordships final report exhibits some confused thinking on the subject. Please click for our earlier story on the final report and Robert Bruce's new column.

ASB publishes case studies

The staff of the UK Accounting Standards Board (ASB) has prepared case studies that are designed to help constituents assess the effect of the proposals for the future of financial reporting in the UK and Republic of Ireland published in October 2010. The comment period for the exposure drafts setting out the proposals for a three-tier reporting framework, which aims to balance the needs of preparers and users of accounts, still runs until 30 April 2011. The case studies can be accessed on the ASB's website.

UK ASB publishes a report on reducing clutter in financial reports

The Accounting Standards Board (ASB) of the United Kingdom Financial Reporting Council (FRC) has published a report Cutting Clutter: Combating clutter in annual reports. The report follows on the from the issue of Louder than Words: Principles and Actions for Making Corporate Reports Less Complex and More Relevant, which was published in June 2009 (see our earlier story).

The report outlines recommendations and methodologies for reduced clutter under existing reporting requirements (including IFRSs):

• A call for action to reduce barriers to reducing clutter – focusing on materiality, tackling longstanding explanatory material in printed annual reports and engaging with other stakeholders
• Changing some of the behaviours that currently serve as barriers to cutting clutter – addressing issues such as "simply repeating disclosures made in prior years" to "fear of challenge from regulators"
• Disclosure aids to enable preparers to tackle clutter – providing illustrative examples on governance, accounting polices and share-based payments.

In relation to materiality, the report notes the following:

The push to reduce the volume of disclosures in financial reports has been increasing in recent times. In response to a request from the IASB, the Institute of Chartered Accountants of Scotland (ICAS) and the New Zealand Institute of Chartered Accountants (NZICA) are working on project with the aim of reducing the volume of disclosure requirements in IFRSs (see our earlier story).

The ASB hopes that the report will stimulate debate and action on this issue, and welcomes any comments by 30 September 2011. Click for ASB press release (link to FRC website).

UK parliamentary body urges caution over IFRS

The UK House of Lords committee examining audit concentration and the role of audit has issued its report. Although it mainly calls for the re-establishing of confidential dialogue between bank auditors and supervisors it also contains some observations on the role which IFRS should play. Chapter 5 of the report is dealing with the impact of IFRS on the banking sector. Here is an extraxt:

Click Here (link to UK Parliament website) for the full report.

UK feedback statement on auditor scepticism

The UK Financial Reporting Council (FRC) has published a feedback statement summarising the responses to its August 2010 Discussion Paper Auditor Scepticism: Raising the Bar.

While primarily focused on the auditing issues, the paper include observations on the interaction of the judgement required in applying IFRSs and audit scepticism. An extract:

Several of the responses from the profession noted that there was a possibility that regulators could confuse the proper application of IFRS, which contemplates a range of potential outcomes, with a lack of scepticism on the part of the auditor. In particular some drew attention to the requirement that impairment losses for financial assets need a neutral assessment of loss events incurred at the balance sheet date and not losses that are expected to occur in the future. Other responses observed that it was not unusual for auditors and management to have different views on estimates but suggested that, where both fell within a reasonable range, it was inappropriate for the auditor to try to replace management's view of what a reasonable estimate was with their own.

The feedback statement (together with the original Discussion Paper) can be accessed on the FRC's website.

Deloitte study of half-yearly reporting in the UK

Deloitte (United Kingdom) has published Six of one (PDF 1,509k), a survey of half-yearly financial reporting in 2010 by 130 listed companies in the United Kingdom. The survey focuses on compliance with the Disclosure and Transparency Rules and IAS 34 Interim Financial Reporting, how companies dealt with developments in IFRSs and what information companies choose to include in their Interim Management Report (the narrative part of the half-yearly financial report). The survey found that while 6% of listed companies had significant going concern uncertainties in 2009/10, none had such issues in the 2010/11 interim reports' survey.

UK ASB releases proposals for a Public Benefit Entity Standard

The UK Accounting Standards Board (ASB) has published a Financial Reporting Exposure Draft, FRED 45, which sets out proposals to be included in a Financial Reporting Standard for Public Benefit Entities (FRSPBE) to accompany the proposed Financial Reporting Standard for Medium-size Entities (FRSME).

The standard addresses concerns that IFRS do not address some transactions that are specific to the public benefit entity sector. It is proposed that the FRSPBE will be mandatory for entities which meet the definition of public benefit entity that apply the proposed FRSME.

Issues which have been addressed include:

• Concessionary loans;
• Property held for the provision of social benefits;
• Entity combinations;
• Impairment of assets;
• Funding commitments; and
• Incoming resources from non-exchange transactions (donations etc).

The consultation period will run until 31 July 2011. It is proposed that the new Standard will be effective at the same time as the FRSME which is currently proposed for annual reporting periods beginning on or after 1 July 2013.

The consultation period for the draft FRSME ends on 30 April 2011. The ASB will be considering the responses it receives to the draft in May 2011 and will post on its website its tentative decisions as this redeliberation work progresses.

Click for:

• FRED 45: Financial Reporting Standard for Public Benefit Entities (FRSPBE) (link to ASB website)

UK ASB issues Financial Reporting Exposure Draft: Amendments to FRS 29

The UK Accounting Standards Board (ASB) of the Financial Reporting Council (FRC) has published Financial Reporting Exposure Draft: Proposed Amendments to FRS 29 (IFRS) 'Financial Instruments: Disclosures': Disclosures — Transfers of Financial Assets. The goal of the exposure draft is to improve the disclosures on transfers of financial assets. The proposals incorporate new disclosure requirements that would help users of financial statements evaluate an entity's risk exposure arising from transfers of financial assets as well as any resulting impact on its financial position. The ASB has issued this exposure draft to keep FRS 29 aligned with the disclosure requirements in IFRS 7, which the IASB amended in October 2010.

Comments are due by 30 April 2011.

Click for:

• ASB press release (link to ASB website)
• Financial Reporting Exposure Draft: Proposed Amendments to FRS 29 (IFRS) 'Financial Instruments: Disclosures': Disclosures — Transfers of Financial Assets (PDF 198k)

FRC wants to bring audit closer to investor needs

Here is an extract:

Click for:

• FRC press release (link to FRC website)
• Full text of Mr Haddrill's spreech (PDF 69k, link to FRC website)

FRC concerned about principal risks and uncertainties reporting

The Financial Reporting Review Panel (FRRP) of the UK Financial Reporting Council (FRC) is concerned about how companies are reporting the principal risks and uncertainties facing their business. The UK Companies Act 2006 requires directors’ reports to contain a business review which must itself contain a description of the principal risks and uncertainties facing the company. In assessing whether directors’ reports comply with this requirement, the FRRP has found that in many cases:

• The directors’ report does not clearly identify which risks and uncertainties the directors believe to be the principal ones facing the business.
• A long list of principal risks and uncertainties is given and the list raises a question as to whether all the risks and uncertainties on the list are actually principal ones.
• The description given of a risk or uncertainty is in generic terms and it is not clear how that risk or uncertainty applies to the company’s circumstances.
• The disclosure is of a risk framework rather than of the risks or uncertainties themselves.
• The principal risks and uncertainties disclosed are not consistent with other information given in the report and accounts.
• The directors’ report does not state how the company manages its principal risks and uncertainties.

The FRRP urges the companies not to hide behind boilerplate disclosures since "Boards who retreat behind boilerplate give the impression that they have not themselves understood the risks they face".

The requirements of the UK Companies Act are also reflected in IFRSs. The Conceptual Framework for Financial Reporting states: "Financial information is useful when it is relevant and represents faithfully what it purports to represent." [F:QC4]. IAS 1.25 says that the uncertainties must be disclosed if management has significant concerns about the entity's ability to continue as a going concern; and in December 2010 the IASB published an International Financial Reporting Standard (IFRS) Practice Statement Management Commentary, a broad, non-binding framework for the presentation of narrative reporting to accompany financial statements prepared in accordance with IFRSs, which also contains recommended risk disclosures (paragraphs 31 and 32).

Click for FRC press release (link to FRC website).

FRC proposes enhancements to company reporting and audit

The UK’s Financial Reporting Council (FRC) has published recommendations aimed at improving the dialogue between company boards and their shareholders. The FRC’s report, 'Effective Company Stewardship: Enhancing Corporate Reporting and Audit', contains seven key recommendations including the recommendations that companies should take advantage of technological developments to increase the accessibility of the annual report and its components and that there should be greater investor involvement in the process by which auditors are appointed. The overall aim of the recommendations is to provide more balanced and comprehensive information to investors. Click for FRC press release and the FRC's report (both links to FRC website).

US and UK regulators reach an information sharing agreement

The United Kingdom’s Professional Oversight Board (POB), a part of the Financial Reporting Council (FRC), and the Public Company Accounting Oversight Board of the United States (PCAOB) have signed an information sharing agreement aimed at increasing the cooperation on the oversight and inspection of audit firms. The Statement of Protocol between the regulators intends to improve the accuracy and reliability of audit reports and help promote public trust in the audit process.

Click for the Statement of Protocol between PCAOB and POB (link to FRC website).

ASB study on capital management disclosures

The UK Accounting Standards Board (ASB) has conducted a study into financial capital management disclosures based largely on published annual reports and accounts of 65 companies across all market sectors. 25 companies appeared to have given no IAS 1 capital management disclosures at all. The annual reports and accounts of the residual 40 companies were then reviewed in more detail covering both the business review and the audited financial statements. Even though the study conclues that there is good practice in places the overall finding is:

Click for:

• ASB press release (link to ASB website)
• ASB Study: Financial Capital Management Disclosures (PDF 230k, link to ASB website)

New comprehensive publications from Deloitte (UK)

	Deloitte (UK) has published updated editions of two of its popular comprehensive financial reporting guides.
	iGAAP 2011 – IFRS Reporting in the UK The fourth edition of this comprehensive guide sets out comprehensive guidance for UK companies reporting under IFRSs. It has been updated not only to deal with new or amended requirements but also to reflect increased practical experience of dealing with IFRS issues and include many more illustrative examples. It states the differences between the requirements of IFRSs and UK GAAP, and also identifies those UK specific requirements that continue to apply to companies applying IFRSs. As well as dealing comprehensively with standards that will apply for periods ending 31 December 2010, it also covers those further pronouncements issued by the IASB up to 31 July 2010 that are not yet mandatory, distinguishing clearly those that have not yet been endorsed by the European Commission. New material includes: IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments the revised version of IAS 24 Related Party Disclosures the IASB's amendments to existing standards an overview of the IFRS for SMEs, identifying key differences with full IFRSs IFRS 9 Financial Instruments.
	iGAAP 2011 – Financial statements for UK listed groups The latest edition of this publication illustrates disclosures in force for December 2010 year ends and beyond. The disclosure requirements of the revised IFRS 3 Business Combinations and the related changes in IAS 27 Consolidated and Separate Financial Statements are illustrated, along with the voluntary disclosures from the Department for Environment, Food and Rural Affairs' reporting guidance on 'carbon reporting' and the proposed disclosures of the Equality and Human Rights Commission on gender pay analysis which is encouraged by the Equality Act 2010. The directors' remuneration disclosures for AIM companies, which were introduced in 2010, are included in a new appendix. Orders for both publications may be placed via www.lexisnexis.co.uk/deloitte.

ASB issues Improvements to Financial Reporting Standards 2010

The UK Accounting Standards Board (ASB) has published a Financial Reporting Standard (FRS) 'Improvements to Financial Reporting Standards 2010'. The ASB is publishing this FRS so as to maintain the existing levels of convergence between UK and International Financial Reporting Standards (IFRS), which will assist groups in preparing consistent financial statements where their consolidated and subsidiary financial statements are prepared in accordance with IFRS and FRS respectively. The FRS includes amendments to SSAP 25 'Segmental Reporting', FRS 8 'Related Party Disclosures' and FRS 29 (IFRS 7) 'Financial Instruments: Disclosures'.

Click for:

• ASB press release (link to ASB website)
• 'Improvements to Financial Reporting Standards 2010' (PDF 167k, link to ASB website)

FRC appoints Roger Marshall as Interim ASB Chairman

Proposals for a three-tier reporting framework in the UK

The proposed three-tier approach, which has been developed and consulted on over the past six years, builds on the existing system:

• Tier 1 – Quoted groups will continue to report under international financial reporting standards (IFRS), as adopted by the EU. They would be joined in Tier 1 by other companies that are publicly accountable. This would apply if their debt is traded on public markets, or if they hold deposits or manage other people's money. (Some very small financial institutions would be exempt.)
• Tier 2 – All other UK entities, except those that apply the Financial Reporting Standard for Smaller Entities (FRSSE), would report under a new standard based on the IFRS for SMEs, which is considerably shorter and less complicated than current UK standards. The FRSME, as it would be called, would be modified to comply with UK and EU law and to ease tax reporting.
• Tier 3 – The smallest companies will continue to use the simplified version of UK standards, the FRSSE.

The consultation period will run until 30 April 2011. It is proposed that the new framework would be effective from 1 July 2013.

The document punblished today includes an explanation of the proposals, a draft Impact Assessment and the two new proposed standards. Click for: 

• ASB press release (link to ASB website)
• The Future of Financial Reporting - Part One: Explanation (PDF 528k)
• The Future of Financial Reporting - Part Two: Draft Financial Reporting Standards (PDF 1.174k)
• The Future of Financial Reporting - Appendices (PDF 339k)
• A Key Facts Document compliled by the ASB (PDF 274k)

Joint ACCA-Deloitte conferences on 'IFRS in the UK'

The Association of Chartered Certified Accountants (ACCA) and Deloitte are hosting two conferences in November on IFRS for companies in the United Kingdom.

The conferences, entitled 'Choosing your GAAP - IFRS for UK Companies', will discuss the UK Accounting standards Board (ASB) consultation document (issued in late 2009) with respect to introducing the IFRS for SMEs, and the consequent Financial Reporting Exposure Draft (FRED) expected in November 2010. The new accounting framework will affect tens of thousands of companies in the UK.

The locations and dates are as follows:

• Edinburgh - 16 November 2010, speakers will be Jim Boyle (Deloitte Partner) and Andy Simmonds (Deloitte Partner and ASB board member) (more information)
• Aberdeen - 24 November 2010, speakers Graham Hollis (Deloitte Partner), Chris Hunter (Deloitte Audit Senior Manager) and Christine Couper (Deloitte Tax Manager) (more information).

UK survey on narrative reporting

Deloitte (United Kingdom) has released a new publication entitled Swimming in words (PDF 6,619k), the latest annual survey of narrative reporting in the United Kingdom. The survey analyses the narrative reporting of 130 listed companies, split into two categories, being investment trusts and other companies. It includes a review of: how compliance with the disclosure requirements of the UK Companies Act 2006, the Listing Rules, the Disclosure and Transparency Rules and the Combined Code varied the extent to which companies have adopted the UK Financial Reporting Council's revised guidance on going concern and liquidity the use of the UK Accounting Standards Board's Reporting Statement: Operating and Financial Review. The UK Department for Business, Innovation and Skills (BIS) issued a consultation paper on the future of narrative reporting in the United Kingdom in August 2010. The consultation period closed on 19 October 2010 and Deloitte has provided the results of the 2010 survey to BIS. Main findings the average length of the annual reports of UK listed companies is now over 100 pages for the first time (at 101 pages), more than double the average length of 44 pages recorded in 1996 when the surveys commenced 93%, 94% and 90% of corporated provided the required information about the environment, employees, and social and community issues respectively. These percentages were a significant improvement on the 2009 equivalents of 87%, 89% and 70% 90% of companies clearly identified key performance indicators, an increase from 84% in 2009. The average number of key performance indicators was seven 4% of companies (2009: 7%) had received a modified audit report relating to going concern. While it is positive that this number has decreased, more companies named the state of the economy as a key business risk. Three quarters of companies did so in 2010 compared with 63% of companies in 2009 35% (2009: 32%) of companies fully complied with the UK's Combined Code on Corporate Governance. Click for Swimming in words - Surveying narrative reporting in annual reports (PDF 6,619k).

Revenue recognition for technology companies

 

In June 2010, the IASB and the FASB jointly published an Exposure Draft (ED) on Revenue from Contracts with Customers. If adopted, the proposals would supersede IAS 11 Construction Contracts and IAS 18 Revenue and related interpretations. The core principle proposed in the ED would require an entity to recognise revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to receive in exchange for those goods or services. What makes this ED even more significant is that the two GAAPs differ most in their approach: current IFRS has comparatively little guidance, compared to the series of detailed rules on application that US GAAP has. Deloitte UK has now published Revenue recognition for technology companies, giving examples of how the proposed approach in the Exposure Draft will be applied in scenarios common to technology companies who report under both IFRS and US GAAP. Click for Revenue recognition for technology companies (PDF 2,295k).

Annual report of the UK FRRP

The Financial Reporting Review Panel (FRRP) of the UK Financial Reporting Council (FRC) has published its annual report 2010. The FRRP is is responsible for ensuring that the annual accounts of public companies and large private companies comply with the requirements of the Companies Act and applicable accounting standards. An excerpt from the FRRP findings:

Conclusion The Panel found continuing improvement in the general quality of IFRS financial reporting. It was particularly pleased to note improvements in the description of significant accounting policies and the disclosure of judgements made by Boards in applying those policies. However, in two areas, capital management and share‐based payment disclosures, reporting was sometimes poor in terms of content, extent and usefulness. The Panel believes that, as the economy stabilises, these areas will assume greater significance in corporate reports. The FRC will, therefore, conduct a targeted review of these matters. The results of the reviews are to be published in the autumn..

Click for:

• FRRP annual report (PDF 320k, link to FRC website)

Consultation on proposals to reform the UK's financial regulatory framework

The UK Financial Secretary to the Treasury, Mark Hoban MP, launched a government consultation on the implementation of reforms to financial regulation. The plan is to overhaul the system of financial regulation, giving the Bank of England powers over macro prudential regulation, through a newly established Financial Policy Committee (FPC) to avoid a repeat of the financial crisis. Among the potential macro-prudential tools suggested as additions to the UK's economic policy framework, is forward-looking loss provisioning. The dynamic provisioning system employed by Spain during the financial crisis is offered as a useful practical example. This system links loss provisions to the credit cycle, so banks are forced to hold higher provisions when credit is growing strongly. The IASB has discussed a dynamic provisioning model, but has decided against it in favour of its expected loss model. Click for:

• Consulation document A new approach to financial regulation: judgement, focus and stability (PDF 1.307k)
• Press release (PDF 44k)
• Our credit crunch page
• Our IAS 39 impairment and provisioning page

The Future of UK GAAP

In August 2009 the Accounting Standards Board (ASB) had issued a consultation paper Policy Proposal: the Future of UK GAAP, which set out proposals for the future reporting requirements for UK and Irish entities. The deadline for comments on the proposal ended 1 February 2010. The ASB's next steps include developing and drafting a Financial Reporting Exposure Draft (FRED) for consultation. The FRED will include an impact assessment. The ASB has now issued a request for responses to aid the development of that impact assessment. The request for responses Assessing the impact of the Accounting Standards Board proposals for the future of UK and Irish Financial Reporting can be downloaded here (PDF 75k). The deadline for responses is 20 August 2010.

IFRS for SMEs in your Pocket - UK version

Deloitte United Kingdom has published the UK edition of IFRS for SMEs in your Pocket (PDF 273k). This 88-page guide to the IFRS for SMEs is similar to Deloitte's very popular IFRSs in your Pocket guide to full IFRSs. This pocket guide is based on an international version* produced by Deloitte's IFRS Global Office. IFRS for SMEs in your Pocket takes each section of the IFRS for SMEs, summarises its requirements, and highlights differences with full IFRS requirements. Additional guidance describing application of the IFRS for SMEs in the UK is added in shaded text. The IFRS for SMEs is particularly relevant in the United Kingdom because the Accounting Standards Board (ASB) has proposed that the IFRS for SMEs should replace UK Financial Reporting Standards. Specifically, the ASB has proposed a three-tier approach to developing UK GAAP converged with IFRSs as follows: Tier 1 – publicly accountable entities would apply IFRSs as adopted by the EU. Tier 2 – all other UK entities, except those that elect to apply the Financial Reporting Standard for Smaller Entities (FRSSE), would apply the IFRS for SMEs. Tier 3 – small entities could choose to continue to apply the FRSSE if they do not exceed two or more of the following criteria: turnover £6,500,000; balance sheet total £3,260,000; and average number of employees 50. Entities in Tier 2 and Tier 3 would have the option of using EU-adopted IFRSs if they wished, and those in Tier 3 would have the option of using the IFRS for SMEs. *Not yet available on IAS Plus. We expect to post it shortly.

The Hundred Group and IASB debate IAS 37

On 5 March 2010 Deloitte hosted a live webcast between The Hundred Group of Finance Directors in the United Kingdom and the IASB on the future of accounting for liabilities under IFRSs. The IASB is in the final stages of a project to revise IAS 37. The original exposure draft (ED) was published for comment in July 2005. In January 2010, the IASB published another ED limited to the proposed revisions on measurement of liabilities, but on 22 February 2010 also put up on its website a 'working draft' of the revised IAS 37 standard in its entirety to enable interested parties to see the revised measurement guidance in the context of the proposed new IFRS. The comment period is until the 12th April. As part of its outreach activities, in this webcast with The Hundred Group, the IASB discusses all aspects of the proposed new IFRS.

Deloitte study of half-yearly reporting in the UK

Deloitte (United Kingdom) has published Measuring by Halves (PDF 1,121k), a survey of half-yearly financial reporting in 2009 by 130 listed companies in the United Kingdom. The survey focuses on compliance with the requirements of IAS 34 Interim Financial Reporting and with the half-yearly reporting requirements in the Disclosure and Transparency Rules (DTR) contained in the Financial Services Authority Handbook.

UK FSA warns of an 'accounting mismatch'

The United Kingdom's Financial Services Authority (FSA, the banking and securities regulator) has published a report Financal Risk Outlook 2010 (PDF 3,113k). The report cautions financial institutions that 'accounting mismatches' have the potential to report profits in a deteriorating economy – which the FSA is predicting. This could happen because accounting allows asset-backed securities to be measured at amortised cost while related credit default swaps are measured at fair value through profit or loss. FSA reminds financial institutions to be clear in their disclosures about this.

We urge UK ASB to adopt quickly the IFRS for SMEs

Deloitte UK has asked the UK Accounting Standards Board (ASB) to make the IFRS for SMEs available quickly to preparers to adopt on a voluntary basis as an alternative to current UK GAAP. Deloitte's letter was sent in response to the ASB's Consultation Paper on the Future of UK GAAP, which proposes to replace UK GAAP with the IFRS for SMEs starting in 2013. Our view is that it should be available as an option sooner. Our letter said that UK GAAP has become unwieldy and confusing and there has been uncertainty over its future for too long. The Deloitte submission to the ASB may be downloaded: From the ASB Website ( http://www.frc.org.uk/asb/technical/projects/resposes_policy.cfm) or Here on IAS Plus (PDF 3,844k). The closing date for responses to the ASB is 1 February 2010.

IASB Chairman will become ICAS President

Sir David Tweedie, Chairman of the International Accounting Standards Board, has been nominated as Vice-President of The Institute of Chartered Accountants of Scotland (ICAS). The ICAS Announcement (PDF 47k) said the appointment "is in recognition of Sir David's outstanding contribution to the accountancy profession and to ICAS, and is made with a view to his becoming President of the Institute in 2012. Sir David retires from the IASB on 30 June 2011". The role of Vice-President is unpaid, and will not interfere in any way with Sir David's IASB responsibilities.

Concerns about implementation of IFRS 3

The United Kingdom Financial Reporting Council (FRC) has issued a study Accounting for Acquisitions (PDF 223k) examining the quality of accounting and reporting under IFRS 3 Business Combinations. Companies told the FRC that acquisition accounting is costly and difficult, and at the same time investors said that the resulting information is not useful.

The FRC found that IFRS 3 "has been poorly applied by companies due to unfamiliarity with its requirements and the complexity of valuing intangible assets such as brands and customer relationships". The study found that companies had "provided insufficient or inconsistent information about material acquisitions in their audited accounts when compared to the rationale for these acquisitions and supporting explanations given in their business reviews".

The FRC intends to follow up on this study over the next 18 months and to provide feedback to the IASB. The FRC is the UK's independent regulator responsible for promoting confidence in corporate reporting and governance.

Concerns about implementation of IFRS 8

The United Kingdom Financial Reporting Review Panel (FRRP) has issued a Statement FRRP Highlights the Challenge of Implementing New Segmental Reporting Requirements (PDF 36k) expressing concern about how companies are reporting the performance of key parts of their business in the light of the introduction of IFRS 8 Operating Segments. IFRS 8 requires companies to provide an analysis of profit, assets, and liabilities so that investors can see the performance of the principal operations or 'segments'. The FRRP reviewed a sample of 2009 interim accounts and 2008 annual accounts and has asked a number of questions about the implementation of IFRS 8, in particular, where:

• only one operating segment is reported, but the group appears to be diverse with different businesses or with significant operations in different countries;
• the operating analysis set out in the narrative report differs from the operating segments in the financial statements;
• the titles and responsibilities of the directors or executive management team imply an organisational structure which is not reflected in the operating segments; or
• the commentary in the narrative report focuses on non-IFRS measures whereas the segmental disclosures are based on IFRS amounts.

1. What are the key operating decisions made in running the business?
2. Who makes these key operating decisions?
3. Who are the segment managers (as defined in the standard) and who do they report to?
4. How are the group's activities reported in the information used by management to review performance and make resource allocation decisions between segments?
5. Is any proposed aggregation of operating segments into one reportable segment supported by the aggregation criteria in the standard, including consistency with the core principle?
6. Is the information about reportable segments based on IFRS measures or on an alternative basis?
7. Have the reported segment amounts been reconciled to the IFRS aggregate amounts?
8. Do the accounts describe the factors used to identify the reportable segments including the basis on which the company is organised?

By All Accounts – New ICAEW Journal

The Financial Reporting Faculty of the Institute of Chartered Accountants in England and Wales (ICAEW) has published the first edition of its new journal By All Accounts. The theme of this issue (dated January 2010) is IFRS for All? Financial reporting by entities of every shape and size is at a crossroads. Three articles in this issue focus on the IFRS for SMEs. Others deal with the following issues, among others: the politics of accounting, directors' duties under the law, IFRSs in transition, writing 'the front half' of the annual report, and IFRSs in central government. By All Accounts is copyright by the ICAEW and is posted on IAS Plus with their kind permission. Click to: Download By All Accounts – Issue 1, January 2010 (PDF 1,240k) Go to Financial Reporting Faculty Website

Make IFRS for SMEs available in UK 'almost immediately'

In an article titled Decision Time published in CA Magazine, Deloitte UK partner Isobel Sharp argues that the United Kingdom and Ireland should make the IFRS for SMEs available almost immediately. The UK Accounting Standards Board has already indicated its intent to replace UK Financial Reporting Standards with the IFRS for SMEs, effective in 2012. "Perhaps only a few would change in 2010," she writes, "but it would be their choice. On the ASB timetable an exposure draft is due to be issued in 2010, with the standard following in 2011, only a matter of months before the January 2012 implementation date.... The techies may be relied on to raise the tedious. But are there any real hurdles? In short, the only question is 'What is best for business?'" Click to Download Decision Time by Isobel Sharp (PDF 309k).

UK ASB pension accounting study

The United Kingdom Accounting Standards Board (ASB) has issued a report The Financial Reporting of Pensions: Feedback and Redeliberations. The objective is to provide the IASB with recommendations on matters it might consider in developing a future financial reporting standard on pensions. The report is being published under the Pro-active Accounting Activities in Europe (PAAinE) initiative by the ASB, EFRAG, and the accounting standards boards of Germany and France. The recommendations are, however, only those of the ASB. The report is a follow-up to a discussion paper issued by the ASB in January 2008 and sets out the ASB's redeliberations and recommendations after consideration of the 103 responses to the discussion paper.

Deloitte's iGAAP 2010 IFRS Reporting in the UK

Deloitte United Kingdom has published iGAAP 2010 IFRS Reporting in the UK. This 3,692-page book sets out comprehensive guidance for UK companies reporting under IFRSs. The book explains clearly the requirements of IFRSs and how they differ from UK GAAP; adds interpretation and commentary where IFRSs are silent or unclear; identifies related UK-specific requirements; and provides many illustrative examples. The manual deals comprehensively with those new standards that apply for periods beginning in 2009 and also covers those further pronouncements issued by the IASB up to 30 June 2009 that will apply from 2010, distinguishing clearly those that have not yet been endorsed by the European Commission. New material in this 2010 edition includes: IFRS 6 Exploration for and Evaluation of Mineral Resources; the revised version of IFRS 1 First-time Adoption of International Financial Reporting Standards (November 2008); the amendment to IFRS 2 Group Cash-settled Share-based Payment Transactions (June 2009); the amendment to IFRS 7 Improving Disclosures about Financial Instruments (March 2009); the amendment to IAS 39 Eligible Hedged Items (July 2008); the amendments to IAS 39 and IFRS 7 Reclassification of Financial Assets (October 2008); the amendments to IFRIC 9 and IAS 39 Embedded Derivatives (March 2009); Improvements to IFRSs issued in April 2009; IFRIC 17 Distributions of Non-cash Assets to Owners; IFRIC 18 Transfers of Assets from Customers; partnerships; small and medium-sized companies; dormant, overseas and unlimited companies and companies limited by guarantee; TECH 01/09 Guidance on the determination of realised profits and losses in the context of distributions under the Companies Act 2006; increased guidance on going concern following the publication of guidance in this area by the Financial Reporting Council; and additional examples and guidance on issues arising in practice. Orders may be placed via www.lexisnexis.co.uk/deloitte or call +44 (0) 845 370 1234. Click to Descriptive Booklet about This and Related iGAAP Publications for 2010 (PDF 248k).

Deloitte UK survey of narrative reporting

Deloitte United Kingdom has published A Telling Performance – Surveying Narrative Reporting in Annual Reports (PDF 4,325k). The survey analyses the narrative reporting of 130 UK listed companies, split into two categories – investment trusts and other companies. It includes a review of: how compliance with the disclosure requirements of the Companies Act 2006, the Listing Rules, the Disclosure and Transparency Rules, and the Combined Code varied; the extent to which companies have adopted the Financial Reporting Council's November 2008 guidance on going concern. In this respect its publication is timely as the FRC has published recently its revised guidance, which will be effective for 31 December 2009 period ends; and the use of the ASB's Reporting Statement: Operating and Financial Review. The main findings for companies other than investment trusts are: the length of the annual report has increased by 3% compared with 2008 and by 41% compared with 2005. 62% of those companies that reported after the November 2008 FRC Update on going concern and liquidity risk was published clearly took on board voluntarily the guidance therein. nine companies (2008: five) had received modified audit reports, seven (2008: four) of which related to group going concern. Another one related to a subsidiary going into administration post year-end; three areas saw dramatic increases compared with 2008: 83% (2008: 47%) discussed their capital structure and financing 68% (2008: 48%) discussed treasury policies 47% (2008: 22%) discussed their current and prospective liquidity 96% of companies (2008: 89%) clearly described their principal risks and uncertainties. Companies disclosed eight risks on average, with one FTSE 350 company identifying 30. The state of the economy was the most commonly noted risk; 84% of companies (2008: 77%) identified clearly their key performance indicators.

UK ASB review of narrative reporting in the UK

The United Kingdom Accounting Standards Board (ASB) has published Rising to the Challenge, the report of its review of the narrative reporting of 50 UK listed companies in 2008 and 2009. The review focused on:

• how companies are complying with the enhanced business review content requirements from the Companies Act 2006 (CA);
• effective communication and presentation of the required content; and
• areas that are leading to clutter in narrative reporting.

• Review of Narrative Reporting by UK Listed Companies: Key Findings (PDF 196k)
• Review of Narrative Reporting by UK Listed Companies: Full Report (PDF 434k)

Archive available for webcast debate on IAS 39

On 6 August 2009 Deloitte hosted a live webcast with the IASB on their proposals to replace IAS 39 Financial Instruments: Recognition and Measurement. The webcast included John Smith, IASB Board member; Gavin Francis, IASB Director of Capital Markets; Sue Lloyd, IASB Senior Technical Consultant; Jens Berger, IASB Practice Fellow; Veronica Poole, Deloitte, Head of UK IFRS Centre of Excellence; Andrew Spooner, Deloitte, Lead Financial Instrument Partner. A recording of the webcast is available Here.

Proposal to adopt IFRS for SMEs in place of UK FRSs

The United Kingdom Accounting Standards Board (ASB) has issued a consultation paper Policy Proposal: the Future of UK GAAP, which sets out its proposals for the future reporting requirements for UK and Irish entities. The Board is proposing a three-tier approach to developing UK GAAP converged with IFRSs as follows:

• Tier 1 – publicly accountable entities would apply IFRSs as adopted by the EU.
• Tier 2 – all other UK entities, except those that elect to apply the Financial Reporting Standard for Smaller Entities (FRSSE), would apply the IFRS for SMEs.
• Tier 3 – small entities could choose to continue to apply the FRSSE if they do not exceed two or more of the following criteria: turnover £6,500,000; balance sheet total £3,260,000; and average number of employees 50.

Financial instruments classification and measurement newsletter

Deloitte LLP (UK) has issued a Comprehensive Newsletter - Time for New Measures (PDF 241k) on the IASB's proposals to replace the financial instruments classification and measurement requirements in IAS 39. The newsletter includes an illustrative statement of financial position for a corporate, bank, and insurer showing the potential impact of the proposals compared with the current classification and measurement requirements.

Moving to the IFRS for SMEs in the UK

Since 2005, listed groups in the United Kingdom have been required to prepare their consolidated financial statements using IFRSs. Almost all other groups have a choice. They can use IFRSs, UK GAAP as developed by the UK Accounting Standards Board (ASB), and if they are small they have a further option of using the Financial Reporting Standard for Smaller Entities (FRSSE). But from 2012, the options are expected to change. UK GAAP is expected to be replaced with the IFRS for Small and Medium-sized Entities. Deloitte (United Kingdom) has published a newsletter Choosing Your GAAP: Planning for the Proposed Removal of UK GAAP (PDF 236k) explaining the ASB's plan. The newsletter examines the choices and explains the key areas of accounting and tax impact, and provides guidance on planning for the change.

Survey of interim management statements in the UK

Deloitte (United Kingdom) has published In Many Styles – The second year's interim management statements. This publication considers how UK listed companies have met the requirements for an interim management statement in the second year of compliance with the Disclosure and Transparency Rules . In particular, it surveys interim management statements of UK listed companies (including separate consideration of investment trusts), reviews compliance with the requirements and compares the findings to the 2008 Deloitte publication First IMpressionS. Click to download In Many Styles – The Second Year's Interim Management Statements (PDF 627k).

FRC CEO argues: do not change the fundamental purpose of accounting

Paul Boyle, Chief Executive of the UK Financial Reporting Council (FRC), argued in a speech to the FRC Annual Open Meeting against proposals to use accounting as a public policy tool to reduce pro-cyclicality and challenged the proposition that accounting measures that show volatility should be adjusted to create an impression of stability. Mr Boyle also warned that the risks to confidence in corporate reporting and governance remained higher than normal and that there was no room for complacency. Click to Download Mr Boyle's Remarks (PDF 98k). Here is an excerpt:

Making financial reports less complex and more relevant

The Financial Reporting Council (FRC), the United Kingdom's independent financial reporting regulator, has published a discussion paper arising from its project on reducing complexity in corporate reporting. The paper – titled Louder than Words: Principles and Actions for Making Corporate Reports Less Complex and More Relevant seeks to address growing concerns about the complexity of corporate reporting. The paper recommends eight guiding principles for reducing complexity: four for better communication in reports and four for improving the quality and effectiveness of regulations. The paper also makes five calls for action where the FRC believes further investigation may lead to opportunities for reducing complexity. These are: Cash flow and net debt reporting: could this be better aligned with user needs such as by including a net debt reconciliation? Wholly owned subsidiaries reporting requirements: could we find ways to reduce the reporting burden such as by reducing the filing or disclosure requirements? Cut clutter: could preparers reduce immaterial information (with the support of regulators) that may be undermining the quality of reports? Disclosures: could we overhaul the process for creating disclosures and provide guidance about when they can be deleted as not relevant? IFRSs: could we improve usability through logical organisation and clearer articulation of the desired outcomes for each standard? The FRC is hoping that the discussion paper will lead to debate within the UK and global financial reporting communities. The FRC has invited comments on its paper from a wide range of constituents by 30 October 2009. Click to download (copyright FRC and posted on IAS Plus with their kind permission): Louder than Words: Full Report (PDF 294k) Executive Summary (PDF 160k)

UK Parliament Committee defends 'mark-to-market'

A report from the United Kingdom House of Commons Treasury Committee has concluded that bad decisions at banks – not accounting rules – caused the global financial crisis. The report, titled Banking Crisis: Reforming Corporate Governance and Pay in the City, makes the following points, among others:

• Treasury Committee Report (PDF 1,819k)
• Comprehensive Credit Crunch Resources on IAS Plus

UK Financial Reporting Faculty

The new Financial Reporting Faculty, launched by the Institute of Chartered Accountants in England and Wales in December 2008, has recruited its first 1,000 members. The Faculty, chaired by Deloitte partner Andy Simmonds, is open to all and offers free access to eIFRS, the ability to create and comment on topical issues through a blog platform, and substantial IFRS resources including a Standards Tracker which monitors and hotlinks to different versions of IFRS standards. More information at the Faculty Website.

New UK Financial Reporting Faculty

The Institute of Chartered Accountants in England and Wales has created a Financial Reporting Faculty 'in response to fundamental changes in the financial reporting environment and the increasing complexity of relevant laws and standards'. The goal of the Faculty is to help members keep up-to-date and understand the implications of new standards, regulations, and practice in financial reporting. Members of the Faculty get access to:

• The Faculty website – a peer-to-peer platform encouraging the sharing of news, uncertainties, concerns, and possible solutions
• Faculty factsheets – practical assistance on UK GAAP and IFRS written by experts in the field
• All of the most up-to-date material issued by the IASB – the full IASB 'eIFRS' subscription service
• The 'Standards tracker' – an online facility for checking current standards and recent amendments
• Discounts on ASB standards and other financial reporting publications and UK courses
• Specialised training and CPD services, including e-learning and online resources

Survey of UK IFRS financial reports

Deloitte (United Kingdom) has published Right to the end – Surveying financial statements in annual reports. The publication looks at what UK listed companies are reporting in the financial sections of their annual reports published between 1 August 2007 and 31 July 2008. The publication is based on a survey of the financial statements of 130 listed companies, split into two categories – 30 investment trusts and 100 other companies. It includes a review of:

• how compliance with disclosure requirements and the accounting policy choices made under IFRSs varied;
• the level of variety in the presentation of primary statements; and
• which critical judgements and key estimations directors consider to be the most significant.

Credit crunch challenges for directors

The United Kingdom Financial Reporting Council (FRC) has published two alerts to directors on the corporate reporting challenges arising from current economic conditions. Because of the global liquidity squeeze, directors and audit committees may need to spend more time planning the year-end activities, reviewing key assumptions and models used in financial reporting, and reviewing the significant accounting and disclosure judgements. In response to those challenges, the FRC has published:

• Challenges for Audit Committees Arising from Current Economic Conditions (PDF 205k)
• An Update for Directors of Listed Companies: Going Concern and Liquidity Risk (PDF 280k)

Deloitte UK study on the first year's interim management statements

Deloitte & Touche (United Kingdom) has published First Impressions: The First Year's Interim Management Statements. This publication considers how UK listed companies have implemented the new requirements for a twice-yearly interim management statement (IMS) in the first year of compliance with the UK Disclosure and Transparency Rules (DTR) (which is based on the European Transparency Obligations Directive). In particular, it surveys interim management statements of UK listed companies (including separate consideration of investment trusts), reviews compliance with the new rules, and contains illustrative and real life example IMSs as well as an IMS disclosure checklist.

Click to download:

• First Impressions Study (PDF 6,706k)
• Press Release (PDF 27k)

Deloitte UK study on half-yearly reporting

A Deloitte & Touche (United Kingdom) study has found that many companies are failing to comply fully with new reporting requirements for half-yearly financial reports following the UK's introduction of the EU's Transparency Obligations Directive (TOD). Deloitte's report, titled Half a story, considers the impact of the TOD, which introduced more detailed and extensive requirements for half-yearly financial reports, including compliance with IAS 34 and shorter reporting deadlines. The report also includes some comparisons with the findings of previous Deloitte studies of half-yearly reporting in 2002, 2004, and 2006.

• Full Report: Half a Story (PDF 1,699k)
• Deloitte News Release (PDF 26k)

Survey of IFRS presentation and disclosure practices in UK

Deloitte & Touche (United Kingdom) has surveyed the presentation and disclosure practices under IFRSs of 100 UK listed companies, based on annual reports published between August 2006 and July 2007. The objectives of the survey were to determine:

• How the disclosure requirements of IFRSs are interpreted in practice
• The underlying trends in presentation of IFRS financial statements
• The extent to which the format is still influenced by UK GAAP reporting requirements

Click to download a Summary of Survey Findings (PDF 747k).

UK government will use IFRSs starting 1 April 2008

The budget and the accounts of the Government of the United Kingdom will be prepared using IFRSs starting with the financial year that begins 1 April 2008. One of the biggest changes from moving to IFRSs is expected to be the inclusion of all of the Government's long-term liabilities in the statement of financial position. The UK Government Resources and Accounts Act 2000 requires that 'Whole-of-Government' accounts (consolidating the entire UK public sector, eventually including local councils) should be prepared to present a 'true and fair view' and to 'conform to generally accepted accounting practice':

• Whole of Government Accounts Website
• HM Treasury Financial Reporting Web Page
• IFRS-based UK Government Financial Reporting Manual Website
• Website of Financial Reporting Advisory Board (FRAB), the Government's accounting advisor.
• FRAB IFRS Announcement March 2007 (PDF 17k)
• FRAB IFRS Announcement June 2007 (PDF 27k)

Report on choice in the UK audit market

The United Kingdom Financial Reporting Council (FRC) has published the final report of the Market Participants Group that has advised the FRC on its Choice in the UK Audit Market project. The Group was established in October 2006 to provide advice to the FRC on possible actions that market participants (that is, companies, investors and audit firms) could take to mitigate the risks arising from the characteristics of the market for audit services to public interest entities in the United Kingdom. The Grou's recommendations are summarised below. Click for:

• Report of the Market Participants Group (PDF 317k)
• Press Release (PDF 22k)

ICAS Report on 'Principles versus Rules'

The Institute of Chartered Accountants of Scotland (ICAS) has published a report Principles Not Rules: A Question of Judgement. The report is the culmination of an ICAS working group project to help find a resolution to the 'principles versus rules' debate within international accounting standard setting. The report concludes that:

Copies of the report are available on the ICAS Website. Also available are a literature review and summary of proceedings of ICAS workshops.

Accounting for 'Heritage Assets'

The United Kingdom Accounting Standards Board (ASB) has published a Discussion Paper Heritage Assets: Can Accounting Do Better? setting out proposals to improve the consistency and transparency of the financial reporting of heritage assets. The proposals will be relevant to entities such as museums holding collections of art, antiques, and books and also to entities that own and manage landscape or buildings for their environmental or historical qualities. The report concludes that the best financial reporting requires heritage assets to be reported as assets at current value, and the paper makes proposals to facilitate that approach. However, it offers an alternative approach for those entities that face genuine difficulties in valuing their heritage assets. Illustrative disclosures are included.

Click to download:

• ASB Discussion Paper (PDF 365k)
• Press Release (PDF 19k).

Financial Reporting

The ASB issued the following standards (all based on the relevant IFRS/IAS) in the fourth quarter of 2005:

• Amendment to FRS 23 (IAS 21) The Effects of Changes in Foreign Exchange Rates - implements the recent change made to IAS 21. (21/12/2005)
• FRS 29 (IFRS 7) Financial Instruments: Disclosures. (09/12/2005)
• Amendment to FRS 26 Financial Instruments: Measurement - implements in full in FRS 26 the following amendments to IAS 39:
  • transition and initial recognition of financial assets and financial liabilities;
  • cash flow hedge accounting of forecast intragroup transactions;
  • the fair value option; and
  • financial guarantee contracts and credit insurance. (28/10/2005)

Following Chancellor Gordon Brown's announcement in late November, the government has repealed the statutory requirement that companies publish an Operating and Financial Review.

Auditing

The APB has issued final guidance for auditors on first-time application of IFRSs in APB Bulletin 2005/03 Guidance for Auditors on First-time Application of IFRSs in the United Kingdom and the Republic of Ireland.

Also, the European Commission has adopted Standard Wording for European companies to refer to compliance with IFRSs in audit reports and notes to the financial statements. This wording differs slightly from the one published by the APB in Bulletin 2005/04 Auditor's Reports on Financial Statements in Great Britain and Northern Ireland. Both wordings are acceptable and the electronic versions of the two Bulletins will be amended to include the EC wording as an alternative by way of a footnote.

New UK Actuarial Standards Board under FRC

The Financial Reporting Council, under which the United Kingdom Accounting Standards Board operates, has established a new regime to set actuarial standards and oversee the regulation of the actuarial profession. The UK government is supporting this effort. The FRC has created a Board for Actuarial Standards (BAS) whose mission is to set high quality actuarial standards independently of the actuarial profession or other interests. The FRC is also extending the remit of the Professional Oversight Board for Accountancy to oversee the regulation of the actuarial profession; and is extending the remit of the Accountancy Investigation and Discipline Board to cover public interest cases involving actuaries. The FRC has appointed Paul Seymour as Chair of the BAS.

Click for Press Release. The FRC has added to its website a New Section on Regulation of the Actuarial Profession.

Problem with IAS 27 for UK Companies

The Institute of Chartered Accountants in England and Wales (ICAEW) has submitted to the IASB and others a briefing paper on a problem in applying IAS 27 Consolidated and Separate Financial Statements by companies in the United Kingdom (and, most likely, elsewhere). IAS 27 requires investors to recognise income from a subsidiary "only to the extent that the investor receives distributions from accumulated profits of the investee arising after the date of acquisition". Any distributions received out of preacquisition profits are treated as a recovery of part of the cost of the investment. Because of the retrospective transition requirements of IFRS 1 for first-time adopters of IFRSs, "a parent company must examine all past distributions made by each of its subsidiaries to determine whether they were paid from pre-acquisition profits. Some parent companies have a substantial number of subsidiaries and will need to locate and examine data – which in some cases may no longer be available or obscured by intra-group reorganisations – from the date of the initial acquisition of the investment. In many cases this is likely to prove a highly onerous task." The ICAEW urges an early amendment to IFRS 1 to ease the burden. Click to Download the ICAEW Briefing Paper (PDF 29k).

Enforcement of accounting standards in UK

The United Kingdom Financial Reporting Review Panel (FRRP) has reached agreements with both the UK Financial Services Authority and Inland Revenue, and also has adopted new operating procedures, all aimed at enhancing the enforcement of financial reporting standards in the UK. Those steps coincide with changes to the Companies Act to give the FRRP statutory power to require companies, directors, and auditors to provide documents, information, and explanations relevant to a question about whether accounts comply with reporting requirements. Link to the FRRP Press Release.

Future Role of UK Accounting Standards Board

The UK Accounting Standards Board (ASB) has published an exposure draft of its Policy Statement, Accounting Standard-setting in a Changing Environment: The Role of the Accounting Standards Board. The ED sets out, for consultation, the ASB's views on its future role, including its roles in:

Comments on the Exposure Draft are invited by 15 September 2005. Click to download the UK ASB Press Release (PDF 20k). You can Download the Exposure Draft from the UK ASB website (PDF 169k).

Guidance for auditing first-time adoption of IFRSs

The United Kingdom Auditing Practices Board (APB) has published further interim guidance (known as Draft Bulletin 2005/3) for auditors on first-time application of IFRSs in the United Kingdom and the Republic of Ireland. In August 2004 the had APB published preliminary guidance on issues that may arise when companies make the transition from UK/Irish GAAP to IFRSs. The new bulletin reflects a number of additional issues, including the auditor's review of interim financial information in the first year of adoption of IFRSs. The bulletin notes:

Click here for Press Release (PDF 25k).

Convergence of UK and International Accounting Standards

In a Discussion Paper titled UK Accounting Standards: A Strategy for Convergence with IFRS, the UK Accounting Standards Board has set out its plans for the future of UK accounting standards in the light of the move to the mandatory use of International Financial Reporting Standards for the consolidated accounts of EU listed companies. Issuance of the ASB's Discussion Paper coincides with a Government Consultation Document 'Modernisation of Accounting Directives/IAS Infrastructure'. The effect of the Government's proposals is that many companies will have the choice of using either UK accounting standards or IFRS.

The Discussion Paper takes as its starting point that there can be no case, in the medium term, for the use of two sets of different accounting standards in the UK, and so UK accounting standards should be brought into line with IFRS. The ASB plans to do this whilst minimising the burden of change on those that choose to report under UK accounting standards.

A phased approach is proposed including:

• new standards effective in 2005 and 2006 that will enhance existing UK financial reporting requirements, maintain their position as highly regarded internationally and adapt to changes in the law; and
• thereafter, a series of 'step changes' replacing one or more existing UK accounting standards with standards based on IFRS as prospective IASB projects are completed.

One of the ASB's main objectives is to avoid requiring two changes of accounting policy in respect of the same issue within a short period. For this reason, it proposes the retention of a number of UK standards where the corresponding IFRS may change following completion of current IASB projects.

The Discussion Paper sets out ASB's current intentions for new standards expected to become effective for accounting periods starting in 2005 and 2006, which are:

• Share options: FRS 20, based on IFRS 2 'Share-based Payment', requiring an expense measured at fair value to be recognised in the profit and loss account for all share-based payment transactions. This will be mandatory for listed companies in 2005 and for unlisted companies in 2006.
• Financial instruments: From 2005, standards based on IAS 32 'Financial Instruments: Disclosure and Presentation' and, for listed companies (and on a voluntary basis for other companies), much of IAS 39 'Financial Instruments: Recognition and Measurement'.
• Retirement benefits: FRS 17 will replace SSAP 24 in 2005 so that, consistent with IASB proposals for IAS 19 'Employee Benefits', actuarial gains and losses are fully recognised in the statement of total recognised gains and losses in the period in which they arise.
• Post balance sheet events: a standard based on IAS 10 'Events after the Balance Sheet Date', replacing SSAP 17 from 2005. Earnings per share: a UK standard (applicable to listed companies only) based on IAS 33 'Earnings per share' and replacing FRS 14 from 2005.
• Related party disclosures: a standard based on IAS 24 'Related Party Disclosures', replacing FRS 8 from 2006.

In addition, the ASB may, after consideration of the responses to its Discussion Paper, issue exposure drafts for:

• a UK standard based on IAS 41 'Agriculture' available for use for accounting periods beginning on or after 1 January 2005; and
• revised disclosures in respect of operating lease commitments, based on those in IAS 17 'Leases'.

The Paper also reviews the implications of the move to IFRS for the Financial Reporting Standard for Smaller Entities (FRSSE) and Statements of Recommended Practice ('SORPs').

Whilst the focus of the paper is on the future of UK accounting standards, it also describes the ASB's plans for its future role, including working with and influencing IASB and other international bodies, maintaining dialogue with its constituents and addressing UK accounting issues.

ASB has requested comments by 30 June 2004.

UK Consultation on Use of IFRSs by Unlisted Companies

The United Kingdom Department of Trade and Industry has released a consultation document Modernisation of Accounting Directives/IAS Infrastructure (PDF 655k). DTI is seeking input on proposed changes to the UK 1985 Companies Act that would allow companies that are not already required by European law to follow IFRSs to choose IFRSs instead of UK GAAP in preparing their financial statements. Companies choosing the IFRS option would be able to reverse it only in limited circumstances. Parent companies would be required to ensure consistency of choice within the group unless there are good reasons against it.

UK auditing board will adopt International Standards on Auditing

The United Kingdom Auditing Practices Board is proposing to adopt the "complete suite" of International Standards of Auditing (ISAs) issued by the International Auditing and Assurance Standards Board. The APB notes that "in the aftermath of accounting and auditing failures in the US and Continental Europe, securities regulators and governments have recognised the value of harmonised auditing standards. In particular the European Commission is in the process of introducing an amended Directive on the statutory audit that will, in all probability, require the adoption of ISAs by all Member States." Link to the APB Announcement.

All UK Companies Will be Permitted to Use IFRS

The United Kingdom Department of Trade and Industry (DTI) has approved a regulation that permits, starting January 2005, all British companies to use International Financial Reporting Standards as an alternative to UK accounting standards. European law already requires listed companies to use IFRS from 2005 in preparing their consolidated accounts. In the UK, that requirement will be extended so that, starting January 2005:

• publicly traded companies in the UK will also be permitted to use IFRS in their individual accounts; and
• other companies and limited liability partnerships in the UK will be permitted to use IFRS in both their individual and consolidated accounts.

Note: Although the press release states "UK Extends Use of International Accounting Standards", the DTI decided in March 2004 to publish a consultation paper and invite public comments on the matter.

ICAEW Survey Shows Need for More Preparation for Transition to IFRS

The Institute of Chartered Accountants in England and Wales has released results of a survey of its members (in both public practice and industry) to assess the level of awareness and preparation for the introduction of IFRS in 2005. Although the majority of members surveyed were aware of the move to IFRS, the survey showed that members generally were not aware of the extent of the impact that IFRS would have in the UK:

• A third of respondents had little or no awareness of the publication of the EU Regulation mandating the adoption of IFRS in 2005. q Less than half of respondents felt they were aware of the effect IFRS would have on their company or financial statements.
• Two-thirds of survey participants were either 'not very aware' or 'not aware at all' of the IASB's timetable for issuing both new and improved standards.
• Only 70% of respondents who had stated that IFRS was applicable to them felt that they would definitely be prepared in time for 2005.
• Only one in seven respondents were aware that the British government has issued a consultation paper on whether IFRS should apply to unlisted companies in the United Kingdom.

The full survey report is available on the ICAEW's Website.

Recently Issued Documents

UITF Abstract 36, Contracts for Sales of Capacity

Effective for years on or after June 2003. It deals with the issues arising, particularly in the telecommunications and electricity industries, where entities buy and sell capacity on each other's networks and sets out limited circumstances under which transactions in capacity should be reported as sales.

Tech 7/03 Distributable profits

Guidance on the determination of realised profit and losses in the context of distributions under Companies Act 1985, issued by ICAEW and ICAS, aims to identify, interpret and apply principles relating to the determination of realised profits and losses for the purposes of making distributions under the Companies Act 1985. It reflects the law and accounting standards in issue at 31 December 2002.

Draft UITF Abstract on treasury shares and proposed revision of Abstract on ESOP trusts

It would require that treasury shares to be accounted for as a deduction from shareholder's funds and no gain or loss to be recognised in Profit or Loss account or Statements of Total Recognised Gains and Losses on purchase or subsequent sale or cancellation

Draft UITF Abstract, Emission rights

The principal conclusions of the draft is that a separate asset (for emission allowance held) and a liability (for the obligation to deliver allowances for emissions made) should be recognised.

Investment trust companies revised SORP

The association of Investment Trust Companies (AITC) has published a revised Statement of Recommended Practice (SORP), Financial Statements of Investment Trust Companies. It replaces the 1995 SORP and has been updated for new and revised accounting standards issued since 1995.

Exposure Draft of Application Note to FRS 5 on Revenue Recognition

On 27 February 2003, the ASB published an exposure draft of an amendment to FRS 5 Reporting the substance of transactions. The exposure draft proposes the addition of a new Application Note G dealing with revenue recognition.

Given the importance of this subject, it may seem surprising that the ASB is choosing to amend FRS 5, rather than publishing an exposure draft of a new FRS. The ASB explains this against the backdrop that international standard setters are at present working on revenue recognition. It is too early to predict the outcome of that work and, in the interests of convergence, the ASB does not wish to issue separately a full standard on revenue recognition. Accordingly, the exposure draft does not deal comprehensively with the subject. It sets out some basic principles, together with specific guidance for five types of transaction, with the intention (though perhaps not the result) of codifying existing good practice.

The basic principles set out in the exposure draft link revenue recognition to the seller's performance of its contractual obligations. This focus on performance is broadly in line with the ASB's discussion paper published in July 2001, although some of the terminology and emphasis is different. Revenue will normally be the amount specified in a contractual arrangement, as adjusted for discounts and, where material, the time value of money and risk.

The five aspects on which specific guidance is given are:

• long term contractual performance;
• separation and linking of contractual arrangements (i.e. 'unbundling' and 'bundling');
• bill and hold arrangements;
• sales with rights of return; and
• presentation of turnover as a principal or as an agent.

• Bad debt risk - One of the risks borne by the majority of sellers is bad debt risk. Where this risk is material (i.e. where bad debt expense is material) it will apparently be adjusted against revenue. Regardless of its conceptual merits, we do not believe this proposal can be said to codify existing good practice, which is to treat bad debts as an expense.
• Agency arrangements - Although the proposals as drafted seem open to interpretation, the exposure draft apparently implies that, in some circumstances at least, an undisclosed agent may recognise as turnover only the net amount of commission received from its principal. As discussed in GAAP 2003, we believe that existing good practice is for an undisclosed agent to account for turnover gross, because it is holding itself out as a principal.

The ASB has indicated that the final Application Note could come into force for periods ending on or after 22 September 2003. Comments on the Exposure Draft are requested by 30 May 2003.

Revised OFR Statement – effective immediately, non-mandatory

The revision of the Statement "Operating and Financial Review" was published in January 2003 and whilst effective immediately, has persuasive rather than mandatory force. The revision is very similar to the Exposure draft (reported in the October 2002 IASPlus Newsletter) and includes the following recommendations.

• Highlighting accounting policies that require judgement in their application and to which the results are sensitive.
• Providing a reconciliation between amounts that have been adjusted (usually called "pro-forma information") and the financial statements.
• Identifying and commenting on the measures that the directors use as key indicators in the business.

Deferral of FRS 17, Retirement Benefits

The ASB has published a final amendment to FRS 17, Retirement Benefits. This amendment delays the mandatory full implementation of FRS 17 to avoid UK companies having to change their accounting policy twice in a short period of time (to FRS 17 and then to IAS 19).

The final amendment to FRS 17 extends the date of implementation to periods beginning on or after 1 January 2005, to coincide with the EU Regulation's timetable for adopting IAS by listed companies. The early full implementation of FRS 17 is still encouraged. Where full implementation is deferred, disclosure is required of the amounts that would otherwise have been shown in the profit and loss account, the statement of total recognised gains and losses and the balance sheet.

Exposure Draft on Share-based Payment Issue

In November 2002 the Accounting Standards Board (ASB) has issued the exposure draft FRED 31, Share-based Payment. This FRED presents proposals for a UK accounting standard based on ED 2 Share Based Payment as issued by the IASB. Comments are invited by 7 March 2003, the same deadline as the IASB.

Consultation Paper on Business Combinations

On 5 December 2002 the ASB issued a consultation paper on the IASB's Exposure Draft on Business Combinations (ED 3), which also includes proposed Standards on intangible assets and impairment. Comments on the consultation paper are requested on 4 April 2003, the same date the IASB has set for their comment deadline on ED 3.

The reason why the ASB has issued a consultation paper on Business Combinations instead of an exposure draft are the following:

• The complexity and the timing of the IASB's two stage project would make it impractical to start the implementation of Phase I in the UK without the remainder of the IASB's decisions in Phase II of the Business Combinations Project.
• Secondly, the ASB has expressed its concern that adopting the IASB's Phase I proposals, would not lead to an improvement in financial reporting in the UK and the Republic of Ireland. The ASB has expressed reservations against the following issues:
  — The use of acquisition accounting for all business combinations, even when an acquirer does not exist. - The proposal to no longer amortise goodwill but to carry all goodwill after initial recognition at cost less any accumulated impairment losses.
  — The fact that the impairment tests as proposed by the IASB are less rigorous than the present practice in identifying impairments, particularly goodwill under UK GAAP.
  — The lack of symmetry under the proposals in the treatment of intangible assets and goodwill, which could give rise to problems, given the lack of clarity of the distinction between the two.
  

Draft UITF Abstract on Contracts for Sales of Capacity

The ASB's Urgent Issues Task Force (UITF) has issued a draft consensus dealing with the issues arising where entities buy and sell capacity on each other's networks. These issues arise mainly in the utilities and telecommunications industry. The draft concludes that a seller of a right to use capacity should not report the transaction as the immediate sale of an asset, or of a component of a larger asset, unless:

• the purchaser's right of use is exclusive and irrevocable;
• the asset component is specific and separable (such that the buyer's exclusivity is guaranteed and the seller has no right to substitute other assets);
• the term of the contract is for substantially all of the asset's useful economic life;
• the attributable cost or carrying value can be measured reliably; and
• no significant operational risks are retained by the seller.

If the transaction is a sale of an asset it will be reported as turnover or a fixed asset disposal based on the previous designation of the asset as stock or fixed asset on construction or purchase.

Revenues or gains in respect of reciprocal transactions for cash or contracts exchanging capacity should be recognised only if the capacities received and provided have a readily ascertainable market value.

Comments on this Draft UITF Abstract are due by 28 January 2003.

Directors' Remuneration

The Director's Remuneration Report Regulations 2002 have come into force, effective for accounting periods ending on or after 31 December 2002. The new requirements will mean that companies falling within their scope (see below) will have to:

• publish a report on directors' remuneration as part of the company's annual reporting cycle; and
• put an annual resolution to shareholders on the remuneration report.

The report should contain the following:

• consideration by the directors of matters relating to directors' remuneration;
• a statement of the company's policy on directors' remuneration for the following and subsequent years;
• details of directors' service contracts;
• a performance graph (a line graph providing, for each of the last five years, total shareholder return for both the company and an index such as the FTSE 100); and
• details of individual director's remuneration (which is subject to audit).

Click Here to see the relevant statutory instrument.

A second statutory instrument (with the same effective date) stipulates which of the disclosures on directors' remuneration should be included in summary financial statements. This can be accessed Here.

Modernising Company Law - White Paper

Following on from the recommendations made by the Steering Group of the Company Law Review last year, the Government published a White Paper Modernising Company Law in July 2002. The proposals include significant changes to the way in which companies are constituted and governed in law. As regards company reporting, key changes proposed include the following:

• For large public and very large private companies, the directors' report would be replaced by a new style mandatory operating and financial review (OFR). The review would include a statement of the company's business, a fair review of performance and a fair projection of the prospects and of events which will, or are likely to, substantially affect the business. It would also include policies on employment, environmental, social and community issues relevant to the business, and be subject to an auditors' report on the adequacy of the procedures in preparing the review.
• For companies not required to prepare an OFR, the directors' report would be replaced with a short simple supplementary statement.
• An increase in the size thresholds that constitute the definition of a small company.
• A reduction in deadlines for filing accounts for public companies from seven to six months and for private companies from ten to seven months.
• A requirement for quoted companies to publish their preliminary announcement and annual report on their website. They would then be required to notify electronically those members that have agreed to have access via the website, rather than in hard copy.

A summary of the bill can be found Here.

Revision of the ASB's Statement on the OFR

In June 2002, the ASB published an exposure draft Revision of the Statement 'Operating and Financial Review' containing proposed amendments to its existing best practice statement.

Six principles that should be applied by directors when preparing an OFR have been proposed. They cover:

• the purpose of an OFR;
• the audience for an OFR;
• the time-frame covered;
• reliability of information;
• comparability (over time and between entities); and
• the use of measures in an OFR.

It is proposed that the discussion of 'performance' in the OFR should be widened. The existing Statement focuses on amounts reported in the profit and loss account, whereas the exposure draft indicates that the OFR should also discuss performance in the context of any other identified business objectives (for example, total shareholder return, market position, net cash flow or environmental performance).

A new section has been added on 'the business, its objectives and strategy', to provide a context for the discussion of performance and financial position in the remainder of the OFR.

Additional emphasis has been placed on discussion of the strengths and resources of the business that are not reflected in the balance sheet (internally generated intangible assets, for example).

The discussion of 'investment for the future' has been widened in comparison to the existing focus on capital expenditure.

The proposed successor body to the ASB is to have responsibility for setting rules on the form and content of any future mandatory OFR (as proposed in the White Paper on modernising company law, discussed above). The ASB has indicated that this exposure draft has been drafted in the context of a voluntary review. It would seem likely that the proposed guidance would need to be revisited should the OFR become a mandatory part of the annual report.

ASB Issues Exposure Drafts to Align with International Accounting Standards

On 15 May 2002, the same day as the IASB issued its Exposure Draft on the Improvements Project, the Accounting Standards Board (ASB) published seven Financial Reporting Exposure Drafts (FREDs) relating to the first stage of a three phase programme to align UK accounting standards with International Accounting Standards (IFRS). The draft documents are ultimately intended to align UK standards with IFRS in these areas.

The ASB has announced its intention to align UK accounting standards with IFRS sooner than the EU imposed 2005 deadline for listed companies, wherever possible. The programme to align standards will be split into three phases. FREDs that either revise existing standards or introduce new standards are to be issued in each of these phases for discussion over the next three years to 2005. This programme will be arguably the largest consultative process that the UK accounting profession has ever undertaken. The ASB's claimed aim is to help ease the 2005 adoption of international accounting standards for group financial statements of listed companies, and in doing so will also adopt the substance of IFRS for individual financial statements and unlisted companies. This in essence is replacing the 'big bang' approach of an implementation in 2005 with a phased transition over three years. As part of the first phase the ASB has issued seven exposure drafts. With the exception of FRED 23 on hedge accounting, these cover topics and pick up proposals that are also included in the IASB's Exposure Draft on the Improvements Project.

No paper has been issued specifically by the ASB in respect of the phased implementation approach; instead it is discussed in the FRED relating to the following topics:

• FRED 23, Financial Instruments: Hedge accounting.
• FRED 24, The effects of changes in foreign exchange rates; Financial reporting in hyperinflationary economies.
• FRED 25, Related parties disclosures.
• FRED 26, Earnings per share.
• FRED 27, Events after the balance sheet date.
• FRED 28, Inventories; Construction and service contracts.
• FRED 29, Property, plant and equipment; Borrowing costs.

FRED 23

The UK currently has very little guidance on hedge accounting, despite the very significant effect it can have on an entity's financial statements. FRED 23 will place limits on the use of hedge accounting and hedge accounting techniques. These cover hedges of net investments in foreign operations. FRED 23 is based on the hedging section of IAS 39 'Financial Instruments: Recognition and Measurement', but not an exact replica. FRED 23's requirements are less exacting than the relevant part of IAS 39. Consequently it should be emphasised that compliance with FRED 23 would not result in compliance with IAS 39, however compliance with IAS 39 is likely to result in compliance with FRED 23 (in all but one area). The additional requirements of IAS 39 are expected to come in at phase II or phase III.

The Accounting Standards Board (ASB) has issued in June an Exposure Draft entitled FRED 30 'Financial Instruments: Disclosure and Presentation; Recognition and Measurement'. The paper is based on the IASB's recently published proposals for revisions to IAS 32 'Financial Instruments: Disclosure and Presentation', and on IAS 39 'Financial Instruments: Recognition and Measurement'. It sets out proposals on accounting for financial instruments which will result in the withdrawal of FRS 4, Capital Instruments, and FRS 13, Derivatives and Other Financial Instruments: Disclosures.

The Proposals

FRED 30 applies to banks and to companies with capital instruments listed or publicly traded, and to contain all the requirements of IAS 32 and IAS 39 except those on recognition, derecognition and 'recycling'. The recognition and derecognition criteria will not change from current UK practice. Amounts that under IAS 39 are required to be taken to equity and 'stored' there until they are 'recycled' to the profit and loss account, under UK proposals are to be either taken to the statement of total recognised gains and losses, or recognised on the balance sheet and then released to the income statement at a later stage.

The proposals assume that the changes required to be made to companies legislation to permit fair value accounting will come into effect in 2004. On this basis, the proposed implementation timetable is likely to be as follows:

• Presentation – assuming that the IASB indicates that IAS 32 is unlikely to change before 2005, UK standards should be amended (with effect 1 January 2004) to implement its requirements in full. FRS 4 (and related UITFs) would be withdrawn;
• Disclosure – effective 1 January 2004, UK standards on financial instruments disclosures (FRS 4 and 13) will be replaced by a UK standard implementing IAS 32 disclosure requirements;
• Measurement and hedge accounting – to become effective on 1 January 2004 so that if an entity chooses to use fair value accounting, it must then adopt IAS 39 fair value measurement and hedge accounting model in full. From 2005, the fair value measurement requirements of IAS 39 will become mandatory; and
• Recognition – no change to current UK requirements until IAS is fully adopted.

• IAS 32 requirements will be implemented for all banks and for companies having listed or publicly traded capital instruments, effective 1 January 2004; and
• IAS 39 requirements will be available at the same time for entities that choose to adopt fair value accounting.

Presentation

• The 'non-equity' category in shareholders' funds will be removed; more capital instruments will be classified as liabilities (e.g. redeemable preference shares);
• Split accounting will be used for compound instruments, (e.g. convertible debt will be split into its equity and liability components); and
• The offset rules for debit and credit balances in the balance sheet will be different, and we believe it will be harder to get offset treatment under the FRED 30 proposals.

Disclosure

• The existing requirements will be replaced by IAS 32 requirements, which in some aspects are less detailed; and
• The disclosure requirements will be extended to include listed insurance companies and groups.

Measurement

It is expected that the Companies Act will be amended to permit measurement of financial assets and liabilities at fair value with an immediate recognition of all changes in fair value in the profit and loss account. If the fair value measurement rules are applied, then the company will:

• Measure all derivatives, available-for-sale assets and instruments held for trading at fair value;
• Measure all other financial instruments at amortised cost, unless an election is made on initial recognition to measure them at fair value; and
• Recognise in the profit and loss account all changes in the fair value of financial instruments, except those arising on valuation of available-for-sale assets, which should be recognised in the statement of total recognised gains and losses.

Hedging

• Companies that elect in 2004 to adopt fair value accounting, and also choose to adopt hedge accounting, must then follow all the IAS 39 rules on hedge accounting, which go much further than the FRED 23 requirements.

Exposure Draft Proposing Amendments to FRS 17, Retirement Benefits

The Accounting Standards Board announced early July its intention to issue an Exposure Draft proposing an amendment to FRS 17, Retirement benefits, which will defer the full accounting impact of FRS 17 and, instead, extend the period during which FRS 17 information is given in footnotes. This will not affect the eventual inclusion of pension assets and liabilities on the balance sheet or the ASB's encouragement to apply FRS 17 in full early.

Accounting Standards

• FRS 17, Retirement Benefits, issued 30 November 2000, becomes fully effective for periods ending on or after 22 June 2003 with certain disclosure requirements becoming effective earlier. Requires reflection of assets and liabilities from pension obligations at fair value and costs and value changes as they arise in a radical change from SSAP 24 approach.
• FRS 18, Accounting Policies, issued 7 December 2000, becomes effective for periods on or after 22 June 2001 (with some parts becoming effective later). It supersedes SSAP 2, updating it to be consistent with the Statement of Principles and other recent pronouncements.
• FRS 19, Deferred Taxation, issued 7 December 2000, becomes effective for periods ending on or after 22 January 2002. It supersedes SSAP 15 with a move to full provision basis for timing differences using the incremental liability approach. Provision will be required for timing differences and committed transactions. Allows discounting.

Exposure Draft

• FRED 22, Reporting Financial Performance, issued 14 December 2000. Comments invited by 30 April 2001. The ASB moved ahead of IASC and the other former members of G4+1 group of standard setters in developing a comprehensive statement of financial performance. The FRED is based on earlier discussion paper prepared by the G4+1.

UITF Interpretations

• UITF 27, Review of Useful Economic Life of Goodwill, effective from 8 December 2000.
• UITF 28, Operating Lease Incentives, effective for periods ending on or after 22 September 2001.
• UITF 29, Website Development Costs, effective for periods ending on or after 23 March 2001.
• UITF 30, Date of Award of Rights to Shares, effective for periods ending on or after 22 June 2001.

Discussion Paper

• Revision of Financial Reporting Standard for Smaller Entities.

Special Projects

• JWG working paper on financial instruments published for consideration in the UK.
• The Convergence Handbook, a study sponsored by the Institute of Chartered Accountants in England and Wales that compares UK financial reporting requirements with IAS and SIC issued by the IASC.

On 1 January 2001, Mary Keegan became the new chairman of the ASB. She replaced in this role Sir David Tweedie who is the new chairman of the IASB. While continuing to work on its current projects the ASB is likely to use this opportunity to undertake a strategic rethinking of its future role in the context of developments in Europe and internationally.